Stop loss order is very important for every successful trader because it protects them from huge losses in trading. What is stop loss order? When, where and how to set stop loss in trading? And how many types of stop loss are there?
You are going to get answers to all these questions in this post. If you have ever traded in the share market or are going to do so, then you must read till the end.
You must have heard that he had put stoploss in his order due to which he suffered very less loss and his order got executed automatically.
So this question must have come in your mind that what is Stop Loss in stock Market? So let us know.
What is Stop Loss
When a trader takes a trade, he can set his stoploss at a price. Through the stop loss, the trade gets automatically sold, this is called stoploss.
As soon as the price of a share at which stoploss is set reaches your price, it gets sold automatically and this reduces the loss.
The word StopLoss is made up of two words, first is Stop and second is Loss. Stop means stopping and Loss means loss, that is, Stop Loss Meaning is stopping the loss.
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Stop loss is mostly used in intraday trading because the market is more volatile there due to which the price of the stock keeps going up and down very quickly, hence stop loss is applied to reduce the loss.
We use stop loss order only when we have already taken a position.
First of all you open your Demat account.
- Now here you select your purchased stock in which you want to set stoploss.
- After this, here you will get the option of Sell or Exit, click on it.
- Here you will see an option of Stop Loss (SL), click on it.
- You have to enter such a price here that if the price of that share falls below this amount then your order will be executed.
- After entering the price, click on the Confirm button below.
- Then you will Sell (Execute) your order but right now your order will not be sold. But it will be executed and will appear in pending
Now as soon as the stock price comes near your stock price your order will be automatically sold. due to which the Stop Loss imposed by you gets hit.
Why is it important to set stop loss ?
When a person working in the stock market trades, the price of the stock goes up and down rapidly in a very short time and in such a situation, along with rapid profit, there can also be rapid loss.
And in such a situation, when we make profit, we close our trade quickly but when we start facing loss, we do not close our trade in the hope that maybe after some time we will start making profit again, our Loss will be reduced.
Many traders working in the market keep waiting, in this wait the losses keep increasing and in the end the trade has to be closed with a big loss.
A very successful trader had said that – If you can’t take a small loss,
Sooner or Later, you will take the mother of all losses.
A successful trader understands the value of stop loss very well, hence he definitely uses stop loss while trading.
How is stop loss set ?
To place a stop loss order, we first have to decide whether we want to place our stoploss order as a market order or as a limit order.
- Market order Stoploss :- In this type of order a trigger price is set. Your market order stop loss is hit as soon as the market comes near the trigger price.
- Limit Order Stoploss :- In this type of order, along with the trigger price, a limit price has to be placed. In this type of order, as soon as the market comes near our trigger price, the limit order placed by us gets executed.
What is stop loss with example
Suppose a person has bought a stock at ₹ 100 but he feels that if he does not want this stock then I cannot take a loss of more than ₹ 5 in it, then this person has a method called stop loss. Through which he can set his stoploss at Rs 95. Now whenever the market comes to Rs 95, his stoploss will be hit and in this way he will be saved from huge loss.
What is stop loss limit order with example
You have bought a share at a price of Rs 1000 and you want to take a maximum loss of Rs 5 on it.
To place a stop loss limit order, you have to click on the position you have buy, then go to the order type, click on the stop loss limit order and enter the price at which you want to cut the position.
When you place a limit order stop loss for your trade position, you also have to set a trigger price. So let us first know what is stop loss trigger price.
What is Triggere price
When you place a limit order stop loss, you also have to set a trigger price along with it.
The trigger price is always placed between your buy and the limit price. Trigger price means that whenever the price comes close to your limit order,
it will trigger the limit order price in advance and send the order to the exchange. When the price in the market comes near your limit price, your order will be executed automatically.
Advantages and disadvantages of placing stop loss
There are many benefits of applying stop loss. It is said that whatever has benefits also has disadvantages. Thus, stop loss also has some disadvantages.
We have told you in detail about both the advantages and disadvantages of stop loss below.
Advantages of stoploss
If you work in the stock market, then there are many benefits of stoploss for you, using which you can reduce your losses a lot.
- You should never trade in the stock market without a stop loss.
- स्टॉक मार्केट में आप मार्केट में किसी भी स्टॉक को खरीद कर अपना एक स्टॉपलॉस सेट करके आप अपना कुछ भी दूसरा कार्य कर सकते हैं
- Many times the market goes up and down a lot due to which a trader’s loss increases manifold, hence you can reduce your loss by setting a stoploss in case of very high market volatility.
- You can reduce your emotions by placing stop loss in your trade positions because sometimes your emotions lead to huge losses in the stock market.
- Taking a correct stop loss in the stock market improves your risk taking ability due to which your risk management is done very well.
Disadvantages of stop loss
Just as there are many advantages of stop loss order, similarly there are some disadvantages of stop loss order in the stock market.
- Many times it happens in the stock market that the market goes up or down only after hitting your stoploss.
- Many new people working in the stock market do not know how to set stop loss, due to which they often have to suffer huge losses due to stop loss.
- People who do not know technical analysis well are never able to find the right stop loss due to which they incur losses.
- Many times a candle is formed in the market which is very big due to which you end up with a huge stoploss in a single candle.
- Many times in the stock market, the stop loss you have set does not get hit because sometimes the market price goes up and down so fast due to which the place where you have put the stop loss is not hit and the market takes your loss several times. multiplies
Why does your stoploss get hit again and again
Many people are new to the stock market due to which they do not know how to set stop loss properly and the biggest reason for this is their technical and fundamental analysis because when you know how to analyze the market, it is very difficult to come at this price.
If so, your stop loss will never be hit. If you know technical analysis, then you have to find a level below or above which you consolidate there several times before leaving the market, due to which your chances of hitting the stop loss order are very low.
Stoploss Meaning FaQ
If you trade in the stock market, then it is very important for you to set a stop loss because through this you can cut your losses quickly. You should never trade and invest in the stock market without a stop loss.
Whatever stock you have bought, from the price of the stock you feel that the market should not come to this level but if it comes then your stoploss will be hit, then if the price of any stock is ₹ 1000 then you will get ₹ Stoploss should be kept at ₹10 to ₹15
You can easily place a stoploss order at any broker with which you buy or sell the stock. When you place the stoploss, the automatic stop loss gets hit as soon as the price of the stock comes near your stoploss.
Stop loss is a very easy way to reduce losses while trading. You can reduce your losses by placing stoploss on any position while working in the market.
To use stoploss in intraday trading, you have to go to your broker’s application and click on the order type and set the stop loss.
Stoploss Meaning Conclusion
Today you have learned complete information about stop loss through this article. We have tried to give you step by step information about every information about stop loss like what is stoploss, stop loss limit order and stop loss trigger price,
We hope that after reading this article, you will not need to go to any other article.
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